House passes credit card bill

[riddler 0]

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I didn't say nobody could make money from bad debts

What you said was this:

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For credit card loans there is no collateral, and the debt seems to be usually wiped out completely.

To which I refuted that the debt is not wiped completely. In fact, the card companies will sell the debt at a loss, but still make some money on it. Then another company will assume that bad debt. So in this case, neither the original company, nor the assumer of the debt will take a complete loss. In fact the assumer, given a block of debt with a few hundred or thousand obligations, will eventually make a profit.

Trapped on the surface of a sphere. XKCD

[georgerussia 0]

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So you're saying that when they gave me the initial card, and said that is was a fixed interest rate, and the terms and conditions stated that they could not change the interest rate without changing the cardholder agreement, that it was really a variable interest rate?

If the rate could be changed any time the issuer wants, and such a change does not require mutual agreement, then the rate is obviously not fixed. Fixed rate agreement usually does not let the bank to change the rate without your consent just because the bank wants to make more money today.

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It's more accurate to say that when I get a card, and have it for 6 years, and it's guarnateed to be a fixed interest rate at 8%, I do not expect them to send me routine cardholder contract changes (which I only agree to by not cancelling the card), and on one "routine" change, they bury, in the legalese, a change, which they promised would never change, and jack up the rate to close to 30%.

Ok, so you do not expect them to send you routine contract changes. But what are you expectations based on? I only lived in the USA for 4 years, but already know that there's a lot of businesses around who wouldn't mind to get your money by what I call walking on the thin line between unfairness and fraud. Since you lived here longer than me, you obviously know that as well. You also know that 8% would be very low interest rate for unsecured business loan, and that until you start carrying balance on your card, the bank has no incentive to review or change your interest rate. Combining all above the situation you described is not unreasonable - it's EXPECTED.

Funny thing is, once I got a card from Citi (it was Home Depot card, which gave us $200 discount on laminate flooring for signing in). Had zero interest for 12 months. Next month I received "change of contract" from Citi, which introduced annual fee. I payed it off, called them and canceled it. The guy on the other side tried to convince me to keep it for like 15 minutes. Of course the annual fee was dropped immediately, but since I only wanted this card to get this discount, I still closed it. Still learned my lesson - almost every change could be waived if you have some leverage (i.e. no balance or ability to easily transfer it), and call the company. I also think such a change could be reversed in a small claims court (as the issuer would have hard time to prove that you received the notice), but it's of course more time-consuming.

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To be clear, the initial card was promised at 8%, and it was not a variable-rate card.

This is not true. The card was promised at 8% until the issuer changes the rate, and the agreement stated the issuer can do it any time they want. This is NOT fixed rate agreement. 8% was CURRENT rate, not fixed rate.

* Don't pray for me if you wanna help - just send me a check. *

[JohnRich 4]

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>I just find it incredibly humorous that a legislative body that is responsible for
>bankrupting this nation with credit spending, is now going to insist that credit
>companies act more responsibly.

I find it even funnier that a lot of republicans have just discovered what "fiscal responsibility" means. Better late than never, I suppose.

I didn't say which party was responsible. They both are. You are the one turning this into the usual partisan BS.

But now that you've opened the door, let's go through it.

And to add even more to the humor, we have here a democrat berating republicans, when democrats are the ones who have just quadrupled the national debt in just 100 days in office.

Ha! I'm laughing my ass off!

[georgerussia 0]

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In fact, the card companies will sell the debt at a loss, but still make some money on it. Then another company will assume that bad debt. So in this case, neither the original company, nor the assumer of the debt will take a complete loss.

Well, getting like 2c per dollar is what I would still call complete loss.

* Don't pray for me if you wanna help - just send me a check. *

[kelpdiver 2]

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So you're saying that when they gave me the initial card, and said that is was a fixed interest rate, and the terms and conditions stated that they could not change the interest rate without changing the cardholder agreement, that it was really a variable interest rate?

If the rate could be changed any time the issuer wants, and such a change does not require mutual agreement, then the rate is obviously not fixed. Fixed rate agreement usually does not let the bank to change the rate without your consent just because the bank wants to make more money today.

You've just proven why this legislation is necessary.

He had a fixed rate. They promoted it as such. The definition on one is that the finance rate doesn't change as the prime rate does. *

* but they can change it to a variable rate, or a higher fixed rate, whenever they feel like it.

[masterrig 1]

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It's something that's been needed for years - too bad it took this sort of crisis to get it passed.

A-MEN!


cHUCK

[billvon 3,006]

>I didn't say which party was responsible.

Nor did I; feeling a little guilty there?

I did say that I am glad that republicans - after a long, long spell of "spend and borrow, spend and borrow" - are finally deciding that fiscal responsibility is a good thing and not a characteristic of an evil, greedy, socialist government. Let's just hope they keep that attitude once the economy turns around and we can safely cut spending _and_ raise taxes to pay off the war, the bailout, the DHS etc etc.

>we have here a democrat berating republicans

Heck, we have republicans berating republicans! Michael Steele, RNC chairman:

============
Look, we can’t go back out and start pointing fingers at the Democrats and saying "look at how bad they’re performing, look at what they’re doing with the economy" when we jumpstarted this thing, we were the ones who put $700 billion on the table and said "alright, let’s start nationalizing the banking system." So now for us stand back and go "oh look, that’s a bad thing to do" is disingenuous.
============

> I'm laughing my ass off!

Good for you! Fortunately some people in the RNC are honest enough with themselves to not think it's so funny. Which is a good thing, overall. Any recovery of the RNC has to be preceded by a recognition of their mistakes.

[georgerussia 0]

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You've just proven why this legislation is necessary.
He had a fixed rate. They promoted it as such.

Fixed rate guarantee is like "your rate is 8% till 01.01.2012, and neither party of contract can change it without mutual agreement". He didn't have such a guarantee; all he had was "your current rate is 8% and will stay at 8% until we decide to change it", which is variable rate.

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The definition on one is that the finance rate doesn't change as the prime rate does.

Fixed rate is the loan where "the interest rate remains the same through the term of the loan".

* Don't pray for me if you wanna help - just send me a check. *

[kelpdiver 2]

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The definition on one is that the finance rate doesn't change as the prime rate does.

Fixed rate is the loan where "the interest rate remains the same through the term of the loan".

While you're free to apply false definitions to a topic where the terms are clearly defined, it is not conducive to the conversation.

[riddler 0]

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Well, getting like 2c per dollar is what I would still call complete loss.

The benchmark recovery rate for collections is 14%. A reasonable offer on debt is 8% not 2%. Add to that the 20-35% fee that the collection agencies add, you are looking at a decent profit. That's why there are so many debt collection services in the U.S.

I won't even start on what the corporation has already written off as bad debt on their taxes, but suffice to say that with enough creative financing, one can turn 100% of a bad debt into only about a 75% loss. That's why there are so many credit card companies in the U.S.

Trapped on the surface of a sphere. XKCD

[georgerussia 0]

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While you're free to apply false definitions to a topic where the terms are clearly defined, it is not conducive to the conversation.

I have no idea where you got a definition of a fixed loan as a loan which does not change when prime rate changes. In your definition the loan where the rate could be changed by the bank any time to any value is a fixed rate loan - as long as those changes are not tied to the prime rate. While my definition is not perfect, calling it false is still kinda overkill.

* Don't pray for me if you wanna help - just send me a check. *

[georgerussia 0]

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The benchmark recovery rate for collections is 14%.

For unsecured loans like credit cards? Or this is the average rate?

* Don't pray for me if you wanna help - just send me a check. *

[loumeinhart 0]

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but they can change it to a variable rate, or a higher fixed rate, whenever they feel like it.

You're right. It's in the disclosure. Duh.

If you want the cost of unsecured credit (interest rate) to never change, simply get a fixed-rate personal signature loan.

Seriously, read an entire credit card disclosure.. you will re-think your decision to get one.

[loumeinhart 0]

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To which I refuted that the debt is not wiped completely. In fact, the card companies will sell the debt at a loss, but still make some money on it. Then another company will assume that bad debt. So in this case, neither the original company, nor the assumer of the debt will take a complete loss. In fact the assumer, given a block of debt with a few hundred or thousand obligations, will eventually make a profit.

Yea, a collection company will pick and choose certain debt to buy or collect on a commission structure. But if you walk away from $10,000 and never answer your phone, no-body makes money on your debt. In fact, you just made $10,000.

[jakee 1,500]

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when democrats are the ones who have just quadrupled the national debt in just 100 days in office.

No they haven't.

That's wacko crazy talk.

Do you want to have an ideagasm?

[riddler 0]

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For unsecured loans like credit cards? Or this is the average rate?

This is unsecured loans. For secured loans, the legal process is long, but eventually, you will get the majority of your money back (minus legal expenses).

People talk about credit cards being unsecured loans, because it's the first thing that comes to mind. Another big area where people default - phone bills. Sprint was one of our biggest customers for block sale of unsecured debt.

Trapped on the surface of a sphere. XKCD

[riddler 0]

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Yea, a collection company will pick and choose certain debt to buy or collect on a commission structure. But if you walk away from $10,000 and never answer your phone, no-body makes money on your debt. In fact, you just made $10,000.

Debt is more typically categorized into three or more levels (example, high chance of collection, medium chance, low chance). Then is it sold in blocks (perhaps 1,000 debtees), but blocks are typically a mix of the levels, so you calculate your percentages, then make a bid on the block. Sometimes block debt is all one category, depending on who originates the debt, but it's harder to sell that way. In the case of a very large company, they care less about the sale value of the block than the write-off, so they'll organize it in the easiest way.

Trapped on the surface of a sphere. XKCD

[georgerussia 0]

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This is unsecured loans. For secured loans, the legal process is long, but eventually, you will get the majority of your money back (minus legal expenses).

But the losses are on a different scale. Just here in Bay Area you can see a lot of homes which are sold 100k+ less than they were sold before. Such losses should be quite rare on unsecured loans.

* Don't pray for me if you wanna help - just send me a check. *

[SivaGanesha 2]

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To me, this is like the feds telling Burger King what to charge for fries.

Last time I checked bankruptcy was mentioned in the US Constitution as being a legitimate role for the federal government whereas the cost of fries at Burger King was not mentioned.

If a credit card company raises rates on someone who has defaulted in some way, that is clearly a first step on a road that may, in some cases, lead to bankruptcy. The federal government does, according to the Constitution, have a role to play on that road at some point. Are they getting involved too soon? Hard to say.

Consider the following scenario: consumer A owes both creditor B and creditor C $1000 each. Consumer A then defaults but doesn't declare bankruptcy until a year later. Due to usurious interest rates and fees, the balance with creditor B has ballooned to $2000 by this point, whereas creditor C--more reasonable in its fees--claims a balance of only $1150 at this point.

Now the consumer only has $1000 in assets to be divvied up between the creditors. Creditor B argues it should get more because of the higher balance. Is this fair to creditor C? Both balances started at the same point and the only reason the consumer owes C less is because C has more reasonable policies--but C will get screwed in bankruptcy court--again, a legitimate federal power--because of its reasonable policies.

Should the federal government, given its constitutionally delegated power related to bankruptcy, have some authority to intervene when someone defaults and is at risk of becoming a bankruptcy?

"It's hard to have fun at 4-way unless your whole team gets down to the ground safely to do it again!"--Northern California Skydiving League re USPA Safety Day, March 8, 2014

[georgerussia 0]

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Now the consumer only has $1000 in assets to be divvied up between the creditors. Creditor B argues it should get more because of the higher balance. Is this fair to creditor C?

That's why at least in Russia the debt principal and interest have different priority, and generally no interest is satisfied until all the principal is.

* Don't pray for me if you wanna help - just send me a check. *

[FallingOsh 0]

More of the same. Protect those who run up debt at the expense of those who responsibly keep it in check. Maybe restricting credit in a credit crisis will be a good thing.

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Stay positive and love your life.

[quade 4]

What this country needs is a good line item veto and fewer opportunists attaching stuff to unrelated bills.

quade -
The World's Most Boring Skydiver

[SivaGanesha 2]

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That's why at least in Russia the debt principal and interest have different priority, and generally no interest is satisfied until all the principal is.

It may also be why credit card issuers usually apply payments first to fees and interest and only then to principal. In my example there could be an issue, even in Russia it would seem, if the consumer made some payments (but less than required to catch up) which got applied to principal (for the less usurious lender) and only to fees/interest (for the lender with high fees/interest).

"It's hard to have fun at 4-way unless your whole team gets down to the ground safely to do it again!"--Northern California Skydiving League re USPA Safety Day, March 8, 2014

[kelpdiver 2]

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That's why at least in Russia the debt principal and interest have different priority, and generally no interest is satisfied until all the principal is.

It may also be why credit card issuers usually apply payments first to fees and interest and only then to principal.

I've not seen such distinction on any credit card bills I have. We have seen a practice of separating out balance transfers with special rates from regular purchases, and cash advances are also in their own category and rate tier. Then they apply the payments to whichever has the lowest rate. The end result is only a fool would do a big balance transfer and continue to use the card for spending.

This was one of the practices that will be altered under the legislation.

[rushmc 23]

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What this country needs is a good line item veto and fewer opportunists attaching stuff to unrelated bills.

SC killed that.

Was it a activists or constructionist court that did that?

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln